Broker’s Call: TCS (Buy)

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Target: 3960 Saudi riyals

CMP: INR 3340.65

Tata Consultancy ServicesCC (Constant Currency) Q-o-Q Revenue Growth And Margin Missed BNP Paribas’ Estimates In Q1 FY24, Mainly As Customers Remained Cautious About Spending On Technology. Still, the results were broadly in line with the Bloomberg consensus. the vanquished.

TCS noted that customers have re-evaluated technology spending, particularly when return on investment is low, and avoided giving any indication of the timing of demand recovery. However, TCS is bullish on Generative Artificial Intelligence (GenAI) as it is currently working on multiple proof-of-concepts, with 100 opportunities in the pipeline.

We see TCS benefiting, both on demand and cost, from new use cases for GenAI and higher throughput. We see lower macro concerns as key to the recovery call as deal signing ($10.2B, Book-to-Bill: 1.4x, ex BSNL) and pipeline remain strong. TCS still has ambitions to bring the EBIT margin back to 26-28 percent and exit FY24 with a higher xx margin.

Continued strong deal signing gives us confidence that the slowdown is transitory and we believe TCS will gain market share of revenue in a cost focused demand environment.

At a 22x FY25E P/E, 26x less than the average 5-year unwanted P/E multiple, we believe near-term demand risk is priced into TCS. We have reduced our EPS for fiscal year 24-26 by 2-3% as we bake in first quarter results and management commentary. TP based on discounted cash flows decreased by 2 percent.